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How to Make Money From Both Sides of a Trade

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About a month ago, I was speaking in a conference room at the Venetian in Las Vegas. We were presenting our 2010 Global Summit, and I was introducing the book I co-authored with our executive publisher Sandy Franks.

It’s called Barbarians of Wealth: Protecting Yourself from Today’s Financial Attilas, and in it we outline four defensive strategies to help you protect your wealth from modern-day financial barbarians.

I told our conference attendees that defensive strategies aren’t the only ways to play the market — even in these tumultuous times.

I gave out three new ways in my presentation last month. One was to play the market itself. In a way, that means making money from both sides of a trade.

For example, we could be talking about exchanges…

You see, money flows through these companies. Exchanges make money from each and every trade that’s made on them… and they charge companies fees to list — kind of like dues.

Consider the volume of trades just on the New York Stock Exchange on Friday alone: 3.538 BILLION!

The NYSE Euronext, Inc. (NYX:NYSE), the company that owns the NYSE, makes a cut off of every single one of those trades.

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Today, there are a number of exchanges that are publicly traded:

  • IntercontinentalExchange, Inc. (ICE:NYSE)
  • Deutsche Boerse AG (DB1:XETRA)
  • Singapore Exchange LTD (S68:Singapore)
  • NYSE Euronext, Inc. (NYX:NYSE)
  • Nasdaq OMX Group Inc. (NDAQ:NASDAQ)
  • CME Group, Inc. (CME:NASDAQ)

(By the way, investing doesn’t have to be complicated. Let me and my fellow editor Jared Levy simplify the market with out easy-to-understand articles.)

And here’s some interesting news: On Oct. 24, the Singapore Exchange Ltd. bid $8.3 billion for the ASX Ltd. (ASX:ASX).

The deal constituted 3.473 shares of the Singapore Exchange and 22 Australian dollars per share in cash. This combined for an ASX share value of A$48.00, a 37% premium to what shares were trading for on Friday, Oct. 22.

In response, ASX shares skyrocketed 25% on Monday, Oct. 25. Combined, the companies would make the world’s fifth largest exchange.

The deal still needs to be approved by both sides, but this type of consolidation will actually make markets more accessible.

And Singapore is at the heart of making other investment areas more accessible, too.

Last week, the Singapore Exchange started trading 19 Chinese ADRs, and will soon be adding Indian, South Korean and Taiwanese ADRs to its lineup. This move is the third ADR partnership it’s made with the Nasdaq OMX Group. The two exchange companies share technology and are working on getting companies to dually list on both exchanges.

Singapore is on the move… It has to be in order to compete with the likes of Tokyo and Hong Kong. That’s why it’s adding all these listings, because — as I noted earlier — exchanges make money from each and every trade.

Even if it’s a losing one.

On Friday, the Singapore exchange saw 1.085 billion trades.

And Singapore is a fully developed exchange, offering a complete range of securities and derivatives — including commodities.

The company is only listed on its own exchange, so to buy this exchange, you’d have to do so on the Singapore Exchange or as a pink sheet that has relatively low volume. But it is also included in the iShares MSCI Singapore Index ETF (EWS:NYSE).

And take a look at what the EWS has been up to over the past year:


View Larger Chart

This rise is half again more than what the iShares MSCI Hong Kong Index ETF has done in the last 52 weeks.

That shows you just how much Singapore is pushing higher… and the changes at the Singapore Exchange (which is 23% owned by the state-controlled Financial Sector Development Fund) are just going to amplify this leap forward.

In the first quarter of 2011, the company will be instituting a faster trading system, and the company’s CEO Magnus Bocker, who has also worked for the Nasdaq OMX Group, is really pushing a lot of new initiatives that will help the Singapore Exchange compete with Hong Kong and Tokyo.

The latest bid for the Australian exchange would be mutually beneficial, even if some think the bid was too high, and others are concerned about the state-controlled aspect of the Singapore Exchange.

If you can, it might be more worth it to grab some shares of the exchange itself, rather than take a position in EWS, of which the exchange represents less than 3.25% of its holdings.

A warning: Near-term dips are nearly a given with the Singapore Exchange as it’s going through the acquisition process. Traditionally, the company doing the acquiring takes a hit in share prices, but this deal will bring more investors and more fees to the exchange — and that’s good for the long-term bottom line.

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P.S. Now, this news is just a week old, so I didn’t get to talk about Singapore in this detail at the 2010 Global Summit we held for our subscribers in Las Vegas.

But I did tell folks about three other ways to play the market that make money from both sides of the aisle, just like the Singapore Exchange. Taipan Publishing Group recorded my presentation — along with all our other editors’ presentations that weekend.

These recordings are now available to all those who couldn’t make it to Las Vegas. And even if you did, and you weren’t able to make it to every editor’s speech, or you missed that key bit of information, everything is “caught on tape” so to speak… every presentation, and both panel discussions, which generated some really good questions and investment ideas.

If you’d like to pick up a copy of our 2010 Global Summit in Las Vegas, follow this link.

Don’t forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

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Other Related Sources:

  • How to Ensure You Never Overpay for Stock: Part 1
  • Australia, Singapore PMs Discuss Stock Markets Merger
  • Singapore Exchange to Trade ADRs for India, Taiwan, South Korea Companies
  • Read more at Taipan Publishing Group


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